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Brussels faces reality check as it prepares to overhaul tech rules



Brussels’ ambitions for regulating Big Tech are about to clash with political reality.

On Tuesday, the EU will unveil its first major overhaul of internet rules in two decades. But announcing the package is just the beginning: achieving sufficient support among MEPs and member states, many of which rely on large online platforms for jobs, will be another matter. 

Europe is tackling the core business of the world’s largest online platforms, most of which are based in the US, so getting its way will by no means be straightforward.

There is a feeling in Brussels that Big Tech has become “too big to care” and that the internet we have now is not the one citizens envisaged. Pressure is also mounting to make companies such as Facebook and Apple pay more taxes, offer stronger privacy safeguards and give more space for rivals to compete.

The EU wants to regulate Big Tech on two fronts. First, the bloc wants large online platforms to police the internet better — or face millions of euros in fines if they fail to properly do so.

Some of the new legal responsibilities will include vetting third party vendors and sharing data with researchers and authorities on moderation of illegal content. Platforms such as Facebook will also have to be clearer about the ads they display online, revealing information about who is behind the publicity and why a user is being targeted by a certain ad.

Second, the EU wants to curb the power of online platforms such as Google and Amazon because it believes they have gained so-called gatekeeper status, which allows them to set the rules under which they compete against smaller rivals. 

To do this, regulators in Brussels will come up with a list of banned behaviours as well as actions they want Big Tech to pursue to aid competition. This will include requiring platforms such as Amazon to share data they gather with third party vendors to ensure a level playing field. 

Margrethe Vestager, the EU’s executive vice-president in charge of digital and competition policy, and Thierry Breton, the bloc’s commissioner for the internal market, will present the landmark proposals on Tuesday after a series of delays.

They will then have to take the draft proposals for a walk in the European parliament, where MEPs are eagerly waiting to have a say. Many politicians will seek to push for even tougher rules. Do not expect consensus any time soon, if ever. 

Ms Vestager and Mr Breton will also face pushback from member states, which are reluctant to hand over too much power to Brussels. France and the Netherlands have already publicly supported the EU’s efforts. But experts expect countries such as Ireland, where large tech companies employ thousands, to question some of Brussels’ ambitions.

“EU countries will resist the European Commission’s monopoly on enforcement,” a seasoned legal adviser told the Brussels Briefing. “They will want their own piece of it.”

Momentum is building behind the EU’s proposals, however. Academics have for years advanced the idea that antitrust enforcement alone cannot tackle market deficiencies, arguing that new regulation is needed.

Politicians and regulators alike see a need to have a clear rule book for Big Tech to move away from the current models of lengthy but often ineffective probes into companies. The hope is that the new regime will lead to more timely action — and start to restore competition in rapidly changing digital markets.

Chart du jour: the hit from no deal

No-deal Brexit will hit different sectors than initial Covid-19 impact. Change in sectoral output

Areas in the north of England and the Midlands that backed Boris Johnson’s Conservatives in last year’s election are among the parts of Britain with the highest shares of jobs in sectors most at risk from the combined impact of a no-deal Brexit and the Covid-19 pandemic. The FT’s analysis found there were 6.86m jobs in sectors most exposed to the double blow of Brexit and Covid-19 — representing just under a quarter of Britain’s overall workforce. (FT)

Europe news round-up

  • Germany will go into a hard lockdown from Wednesday, with all schools and shops closed, as it battles to control a surge in coronavirus infections. “Corona has got out of control — we are at five minutes to midnight,” Markus Söder, prime minister of Bavaria, told journalists on Sunday. (FT, DW)

  • Finland and Norway have offered medical assistance to Sweden as their neighbour faces an increasingly severe second coronavirus wave that has stretched clinical staff and intensive care capacity to the limit in some areas. (FT)

  • The EU and UK have agreed to further extend their future relationship talks after making progress on cracking the crucial sticking point: the design of a mechanism to meet EU demands for fair competition without thwarting the UK’s determination to escape the bloc’s rules. (FT)

  • Europe’s top financial regulators are putting the finishing touches to new recommendations to allow the region’s strongest banks to restart dividend payments within strict limits, ending a nine-month hiatus imposed by the coronavirus crisis. (FT)

  • Robert Ophèle, chairman of Autorité des Marchés Financiers, has called for an overhaul to the supervision of asset management in Europe as the sector becomes an increasingly cross-border business. (FT)

Coming up this week

After the latest deadline came and went on Sunday, EU-UK talks will continue. Home affairs ministers and energy ministers will hold video calls on Monday.

On Tuesday and Wednesday, fisheries ministers hold their big annual quota-setting council — for the first time without UK waters up for discussion. The commission is also set to unveil long-awaited tech regulation overhaul, with the announcements of the digital services act and digital markets act.

On Wednesday, the EU is due to unveil its strategy for handling non-performing loans at banks.

Holiday notice: Wednesday’s edition will be the final one before the Brussels Briefing takes a festive break. We’ll be back in early January 2021.

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Ransomware attacks rise despite US call for clampdown on cybercriminals




Ransomware updates

In mid-June, US president Joe Biden held talks with his Russian counterpart Vladimir Putin to discuss a recent scourge of cyber attacks against the US, including by Russian-based criminal ransomware hackers. 

Biden has said he told Putin in no uncertain terms that “certain critical infrastructure should be off limits to cyber attack — period”. Nevertheless, data show that ransomware attacks continue apace, including in sectors such as healthcare and education. It is unclear whether Biden will take further action in light of this. 

Ransomware, which usually involves hackers seizing an organisation’s data or computer systems and only releasing access if a ransom is paid, has long plagued businesses large and small. The first known ransomware virus, PC Cyborg, was recorded in 1989, with victims infected via floppy disk and told to send a $189 cheque to an address in Panama.

Today, these financially motivated hacks are far more sophisticated — and are proliferating fast. Attacks have quadrupled during the pandemic, SonicWall data show, partly because the shift to remote working has left staff more vulnerable than if they were connecting to more secure corporate networks. 

Chart showing that ransomware attempts reached an unprecedented level in 2021

Additionally, hackers have swapped demanding cheques for requesting hard-to-track cryptocurrencies, meaning that as the price of bitcoin has risen during the past year, the business of ransomware has become all the more lucrative. It is also easier to launch attacks with little to no technical knowhow, given the growing market for “ransomware-as-a-service”, where hackers maintain their ransomware code but rent it out to others and take a cut of any extortion payouts. 

While known attacks have reached unprecedented levels, the story of what we do not know — given that there are few rules around disclosure — may be far worse. Earlier this week, Bryan Vorndran, assistant director of the FBI Cyber Division and other cyber agency officials called for mandatory reporting rules around attacks, so that accurate data can be gathered and analysed by the US government.

Chart showing the median size of companies targeted by ransomware (number of employees)

Small businesses with little spare resources have tended to be the hardest hit by ransomware attackers. But the matter was thrust into the spotlight earlier this year after several audacious attacks on critical infrastructure such as the Colonial Pipeline, which led to fuel shortages for several days on the US east coast, the Irish health system and Brazilian meat supplier JBS. All of these attacks were believed to originate from Russia-based ransomware hackers, although the US government has accused Chinese state-backed groups of also orchestrating attacks.

The number of ransomware gangs stretches into the dozens and continues to proliferate as the economics remain so profitable. Vorndran said the FBI tracked 100 gangs, using an algorithm to rank them and the effect that each has on the economy. The largest one rakes in an estimated $200m a year in revenues, he said.

Chart showing that ransomware demands can often be negotiated down

To help victims fight the gangs, a cottage industry for “ransomware negotiators” has emerged. These middlemen are tasked by victims with haggling down the ransom payments. As go-betweens, they also collect data on attacks, learning the playbooks of various groups in order to best know how to speak to them. 

According to data from Coveware, the average ransom payment has fallen in the second quarter to $136,576, from more than $200,000 in the first quarter, amid an emergence of smaller ransomware groups. But in the majority of attacks — about 80 per cent — hackers are using the newer tactic of threatening to leak data as extra leverage in extorting victims. About half of these “leak threat” victims paid out in the second quarter, Coveware said.

Chart showing publically reported ransomware attacks on US healthcare, public, state or local government and schools, by month

Unfortunately, the negotiators’ services continue to be in high demand. According to data on reported attacks collated by Recorded Future, in the US there have been 10 attacks on healthcare, nine on schools and 10 on public state and local government groups during June and July this year. Despite Biden urging Putin last month to crack down on the criminal groups and warning against attacks on 16 critical entities, attacks on many of these key sectors have continued.

“The volume of targeted attacks on government organisations and enterprises that impact civilians, countries and the global economy will not end without a change in approach,” said Bill Conner, the chief executive of SonicWall.

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France delays EDF reforms after failure to agree terms with Brussels




EDF updates

France has been forced to delay the restructuring of state-owned utility EDF after it failed to agree the terms with the EU, a setback to a major economic reform promised by President Emmanuel Macron.

“Significant progress has been made in our discussions with the European Commission, but to date we have not reached an overall agreement,” said a government official. “Therefore it is not possible to submit a draft law to parliament if the principle points of the reform have not been agreed to in advance.”

Jean-Bernard Lévy, EDF chief executive, on Thursday declined to provide a specific timetable for when the reform could be completed, but analysts said it would likely prove difficult at least until after the French presidential elections next April.

“I regret that this reform that is indispensable to EDF cannot happen now,” said Levy. “Our short term [prospects] are guaranteed, but our medium and long term are not if we want to play in the big leagues, which is what is expected of EDF.”

Dubbed Project Hercules, the planned overhaul of EDF was meant to give it the financial firepower to invest in both nuclear and renewable energy in the coming decades.

An important element would be changing the mechanism and regulated prices at which EDF sells nuclear power, which provides 70 per cent of France’s electricity. France wanted to push through higher regulated prices for nuclear power, so EDF could pay down heavy debts and absorb the high costs of maintaining its nuclear reactors.

But Brussels would have to approve such a change because of its remit to ensure free competition in the energy sector and to prevent member states from unfairly bailing out companies.

The plan would effectively split up EDF by creating a government-owned mother company, EDF Bleu, containing the nuclear assets as well as a hydroelectric subsidiary. Another subsidiary, EDF Vert, would house renewable assets, the networks and services businesses, and would be publicly listed with about a third sold to raise funds to boost EDF’s green energy investments.

Macron has argued that the changes are vital for EDF to flourish and keep up with rivals. Given that France owns almost 84 per cent of the group, the government had also hoped the reforms would lighten the state’s financial burden.

But the overhaul has been caught in wrangling with the commission. Le Monde reported that the key sticking point was how the relationship between the newly created entities would work and whether cash could freely flow between them as if the company were still fully integrated.

The French finance ministry, which has piloted the talks, and the Elysée Palace declined to comment further on the details.

EDF’s powerful labour unions had opposed the plan as a prelude to the group being broken up or privatised, and have also raised concerns that it would pave the way for nuclear energy to be marginalised.

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“We celebrate the knockout punch delivered to Hercules,” the far-left CGT union said. “The only aim of these manoeuvres is to pull off juicy financial transactions at the expense of consumers and EDF employees.”

EDF shares fell as much as 4 per cent on Thursday as the reform’s failure overshadowed strong second-quarter financial results that showed the utility rebounding as economic activity picked up despite the Covid-19 pandemic.

Barclays analysts wrote in a note that investors were being too pessimistic on the outlook for the reform even if its timing was hard to predict.

“We continue to believe that ultimately there will be an agreement between the EU and France on EDF’s reorganisation.”

Additional reporting by David Keohane

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EU economy chief urges end to ‘muddling through’ with budget rules




EU economy updates

Brussels cannot afford to carry on fudging the application of its own fiscal rules to blunt their negative impact, the EU’s economics chief said as he called for a far-reaching legislative overhaul to help drive stronger public investment and growth.

Paolo Gentiloni said he wanted “renewed and reviewed” EU budget rules that would provide an incentive to public investment in the green and digital transitions, while fostering stability and durable economic growth.

“It is clear we cannot simply go back to normal,” Gentiloni said in an interview with the Financial Times. “You need common rules that are connected to the economic challenges we have. Otherwise, the risk is that the European Commission will spend the next decade finding creative ways to bypass its own rules, which I think is not the best solution we can have.”

The commission is due to restart this autumn a consultation on how to amend the rules surrounding the Stability and Growth Pact (SGP). The budget framework is currently suspended because of the Covid-19 crisis, but the rules are likely to be reimposed in 2023, and there will be a fierce debate ahead of that over how they should be reformed.

Janet Yellen, US Treasury secretary, this month added her voice to those arguing that the SGP restricts governments’ latitude to battle downturns as she called for the EU to reinforce its stimulus efforts. But fiscally conservative northern European member states will chafe against efforts to substantially loosen the rules, reigniting a north-south divide over economic policy.

Gentiloni said he did not see it as the commission’s role to question the EU treaty, which contains the basic goals of keeping public debt at 60 per cent of gross domestic product and deficits to 3 per cent. But he said he wanted the commission to propose reforms to legislation as it seeks to reflect post-pandemic realities, including the surge in average eurozone public debt burdens to 100 per cent of GDP.

He questioned whether the bloc should return to a “‘low for long situation’ — low inflation, low growth, low interest rates? Or should we try to use this crisis . . . to try to have stronger and more sustainable growth?”

He supported several changes, including adjusting the rules governing the mandated path for bringing down public debt ratios, which under the current framework would entail deep and punishing reductions following the debt blowouts over the past year.

The changes would entail a shift to more “simple and observable” criteria to manage fiscal policies, he said, referring to a suggestion from the European Fiscal Board, a commission advisory body, for a budget policy set according to an “expenditure rule” setting a ceiling on the growth rate of nominal public spending.

In addition, the rules would need to be changed to provide an incentive to public investment. This would help avoid repeating the aftermath of the financial crisis, when net investment drifted rapidly lower, stymying growth.

One idea is a “golden rule” excluding some specific growth-enhancing expenditure from the ceiling on spending growth, but Gentiloni stressed he was not wedded to that specific concept. “There are a lot of possible solutions, proposals, if we recognise the need to encourage, to strengthen, public investment in certain sectors.”

To “muddle through” with the budget rules might have previously seemed reasonable, Gentiloni said, but he argued that given the circumstances, legislative changes would be needed. “This is the only way to have real common rules, and not just common rules that are there to be bypassed,” he said.

Gentiloni reiterated the upbeat short-term economic outlook he offered this month when the commission published forecasts predicting the strongest growth in decades, with an expansion of 4.8 per cent this year and 4.5 per cent next.

While the spread of the Delta coronavirus variant presented a “downside risk” to growth, he stressed that the current situation was far more propitious given the rapid rate of Covid vaccinations. The EU, he pointed out, had caught up with the adult vaccination rate of the US.

“We know very well we’re not out of the woods. At the same time we should be very clear we’re in a different situation from the one last summer and the difference is caused by vaccines and vaccination,” Gentiloni said.

Indicators of individual mobility, and the stringency of lockdown measures, continued to point to a recovery “with speed”.

“I think the recovery will proceed. All in all our brighter forecast is still supported by what we see on the ground,” he said.

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